Is Amazon FBA Worth It? Pros and Cons
If you’re trying to pivot your business to e-commerce, you may be interested in Amazon’s FBA service.
The benefits of e-commerce are significant: NBC News found that in 2020, many businesses were forced to transition to online marketplaces due to the pandemic. In this case, these businesses were able to sustain their sales and even break records.1
Still, the logistical stress of e-commerce can dissuade many business owners.
That’s where Amazon’s Fulfillment by Amazon (FBA) comes in. By handling the entire fulfillment process, FBA is an Amazon marketing strategy that allows businesses to focus less on logistics and more on what they do best: crafting their products. Read on for a breakdown of the program, the benefits of Amazon FBA, and its alternatives.
What Is Amazon FBA?
The fulfillment process begins when a customer clicks “Check Out” and continues until they get their order, or send in a return or exchange. The basic steps to the fulfillment process are as follows:2
- Warehousing/inventory storage
- Packing orders
- Shipping orders
- Processing returns or exchanges
Amazon FBA is the Fulfillment by Amazon program. Businesses send their products to an Amazon fulfillment center. There, Amazon takes care of the:
Amazon FBA even covers the customer service, returns, and exchanges for these Amazon orders. How much does this comprehensive service cost? Businesses can gain access to this program for $39.99 per month, in addition to selling fees.3
Pros of Amazon FBA
The benefits of Amazon FBA are immediately obvious, especially if your fulfillment infrastructure is small or nonexistent. We’ve also outlined a few additional advantages that you might not be aware of:
- Access Amazon Prime – Businesses who use Amazon FBA are eligible for Amazon Prime shipping, which means that prime customers are more likely to click “order” on your Amazon product.
- Utilize “The Buy Box” – On a product listing, Amazon includes other sellers within what they call “The Buy Box.” An Amazon FBA seller is more likely to gain this real estate than sellers who do their own fulfillment.
- Support multi channel fulfillment – Amazon FBA also supports fulfillment for orders that are not sold through Amazon marketplace, allowing you to support your business’s multiple sales channels.4
- Use easily – Amazon makes their Marketplace extremely simple to use, regardless of your technological proficiency. CEO of FilterBuy David Heacock describes the FBA program as significantly easier than building your own website and fulfillment infrastructure.
- Join the winning team – Amazon is by far a prominent force in e-commerce. By utilizing Amazon FBA, you can benefit from Amazon rather than trying and failing to compete.5
- Decrease shipping costs – No one understands scales like Amazon. With FBA, you can benefit from Amazon’s enormous size and ability to drive down shipping rates in a way only a large corporation can.
- Expedite shipping – By the same principle, Amazon can offer your business much faster shipping without significant added costs.
- Make it simple – Amazon FBA streamlines the entire logistical process of fulfillment, making its fee a small price to pay for businesses that are unable to build up their own logistical infrastructure.
- Include customer service – FBA takes care of customer service and communication and even returns and exchanges, decreasing your own labor requirements.
- Access storage space – With FBA, you have unlimited storage space in every geographic region to utilize as your business grows.6
Cons of Amazon FBA
Despite these many advantages, Amazon FBA still has its drawbacks, including:
- Inventory tracking – While Amazon provides inventory tracking, it may be an adjustment for businesses accustomed to being able to physically count their products to manage their inventory.
- Increased returns – Amazon prioritizes customer experience, touting their “easy returns process.” As a result, you might see an increase in your return rate.
- Additional shipments – You will still need to package, label, and ship your products to an Amazon Warehouse and use their ASIN/UPC barcode system, which may be inconvenient to some small business owners.
- High cost – In addition to the monthly fee, you also have to pay Amazon to store your inventory. If you’re new to inventory management and your products aren’t selling, these fees might become painful as your products sit in Amazon warehouses.4 For some businesses, these fees also begin to cut into their profit margins, forcing them to leave Amazon.
- Seller theft – Amazon has a problem with copycat sellers who will list their own counterfeit products under your item number. Peter Denbigh of the Watch Ya’ Mouth game dealt with this disadvantage firsthand, suffering from low customer reviews from counterfeit products and lost sales as a result.
- No direct customer relationship – Although it’s convenient that Amazon manages customer service for FBA users, that means that you can’t actively target these customers in the future because Amazon maintains their information. At the end of the day, your company still needs to be the one to prioritize customer satisfaction and build customer relationships.
- Uncertainty – Some sellers report difficulty communicating with Amazon, especially when problems occur, such as broken or lost items. For example, if you don’t follow Amazon’s policies, your profile can be shut down completely, and you may be unable to appeal for a reboot.5
How to Join Amazon FBA
If you’re ready to join Amazon FBA, here are 10 simple steps:3
- Register for an Amazon seller account for your business.
- Navigate to Amazon Seller Central.
- Set up FBA through Amazon Seller Central.
- Create listings for your products.
- Add your product listings to the Amazon catalog.
- Specify that your products are FBA inventory.
- Prepare your products using the Amazon packing guidelines, shipping, and routing requirements.
- Create your shipping plan.
- Print Amazon shipment labels for your products.
- Ship your inventory to Amazon fulfillment centers.
Alternatives to Amazon FBA
It’s important to remember that fulfillment by Amazon isn’t your only option. Amazon FBA is best for companies that:7
- Want to save time
- Want to scale their business
- Want comprehensive support
- Want to be eligible for Amazon Prime
If your business doesn’t fall into these categories or if you’re still unsure about Amazon FBA, we’ll cover your other options below.
With in-house fulfillment, you take care of storing and shopping your orders from your business location or a secondary warehouse. This option is best for businesses who:
- Ship at a low volume
- Have their own logistical network
- Have complex packing or shipping requirements
However, in-house fulfillment has some key disadvantages because it:
- Restricts the variety of products you can sell
- Restricts the number of products you can sell
- Increases overhead expenses in some cases
Many businesses start out with in-house fulfillment and as their business grows, transition to third-party fulfillment such as Amazon FBA.7
Amazon FBA is a third-party fulfillment program, but it is not the only option. It’s best to shop around to find which third-party fulfillment can offer you both the best rates and services. Whether you choose Amazon FBA or another company, here are the questions to ask yourself as you make your decision:8
- How many e-commerce sales do you make? As your online sales increase so will the logistical burden and complexity of the fulfillment and inventory tracking process.
- What kind of products do you sell? Particularly large, fragile, complex, or even hazardous items have specific shipping requirements and concerns.
- How many sales channels do you have? Not every third-party fulfillment service can appropriately manage multiple sales channels.
- Can you effectively track your supply levels? If you’re unable to accurately track your inventory, especially if you have perishable or seasonal products, then a third-party fulfillment service with up-to-the-minute reporting on sales and inventory is necessary.
- Do you have in-house customer service? Some fulfillment services also take care of customer service and customer questions, but this can be to the detriment of your personal customer relationships.
- Is your shipping both convenient and affordable? A survey by Amazon found that shipping was an essential part of the online shopping experience for 84 percent of people.
- Do you have somewhere to store your products? As your e-commerce sales grow, you will need more space to store products, especially if there are specific concerns regarding the environment they need to be stored in (i.e. somewhere temperature controlled).
- Can you process returns? Processing returns can add an additional layer of logistical stress that third-party fulfillment services can minimize.
- Do you need additional fulfillment software? As your business grows, you will likely need to purchase specialized fulfillment software if you continue to handle orders in-house.
- Do you need to make international sales? International shipping adds significant logical concerns that third-party services can reduce.
- Do you need distributed warehousing? Distributed warehousing allows for shorter shipping windows if your customers are spread out geographically.
- Do you need products to be bundled? Many third-party fulfillment services can support product bundling so you can improve the customer shopping experience.
- Are you interested in subscription fulfillment? If you’re interested in providing customers with the opportunity to subscribe to your products, third-party fulfillment can minimize the additional logistical complexities.
- What is your budget for fulfillment services? Consider the cost for your in-house fulfillment vs. the rates that third parties such as Amazon offer. Costs to evaluate include administrative, product, receiving, storage, packing, kitting, and shipping costs.
Leverage Amazon’s Resources and PDM
So is Amazon FBA worth it? Leverage the pros and cons of Amazon FBA.
If you don’t already have fulfillment infrastructure and if you are interested in rapidly scaling your business and increasing your sales, then yes. For other businesses, Amazon FBA might not be right because the cost-benefit analysis doesn’t add up or because the direct customer relationship is essential.
To further scale your business and increase your sales, enlist our digital marketing agency, Power Digital Marketing. We provide your business with a digital marketing strategy to elevate your brand and optimize your growth plan.
- NBC News. Small businesses who pivoted to e-commerce saw record sales during Black Friday weekend. https://www.nbcnews.com/business/business-news/smalthate-commercel-businesses-who-pivoted-e-commerce-saw-record-sales-during-n1249499
- Amazon. The Ecommerce Fulfillment Guide to Grow Your Business. https://sell.amazon.com/learn/ecommerce-fulfillment?ref_=sdus_fba_ecommf_what_h1
- Amazon. Fulfillment by Amazon. https://sell.amazon.com/fulfillment-by-amazon.html
- Intuit Quickbooks. Pros and cons of FBA (Fulfillment by Amazon). https://www.tradegecko.com/blog/ecommerce-tools/pros-and-cons-of-fba-fulfillment-by-amazon
- Forbes. Thinking Of Selling On Amazon Marketplace? Here Are The Pros And Cons. https://www.forbes.com/sites/pamdanziger/2018/04/27/pros-and-cons-of-amazon-marketplace-for-small-and-mid-sized-businesses/?sh=240fc3b76867
- Big Commerce. Leveraging Amazon FBA for Your Online Sales Success. https://www.bigcommerce.com/blog/amazon-fba/#the-pros-and-cons-of-fba
- Amazon. Common ecommerce fulfillment options. https://sell.amazon.com/learn/ecommerce-fulfillment?ref_=sdus_fba_ecommf_what_h1#three-fulfillment-options
- Amazon. Checklist: What factors should you consider when scaling fulfillment? https://sell.amazon.com/learn/ecommerce-fulfillment?ref_=sdus_fba_ecommf_what_h1#scaling-fulfillment